Indian Exports…. way forward! – Part-1

Indian Exports…. way forward! – Part-1

India’s exports was predicted to be 900 US$ billion by the year 2020. The vision of Foreign trade policy of the Government of India runs as below:

The vision is to make India a significant participant in world trade by the year 2020 and to enable the country to assume a position of leadership in the international trade discourse. Government aims to increase India‟s exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20 and to raise India‟s share in world exports from 2 percent to 3.5 percent

But the target looks distant as of now. Of course, there are many factors beyond the control of Government of India and exporters. The world economy is yet to come out of recessionary tendencies coupled with disturbed international business scenario in many parts of the world. The attempts by the Government of India have not yielded much result in keeping the export tempo towards the objective set by its foreign trade policy. Incentives in the form of Merchant Exports From India Scheme (MEIS) and Service Exports from India Scheme (SEIS) perhaps did not have the desired effect to put exports on the firm footing.

Amidst all this confusion, googly came in the form of GST. The introduction of GST is to be welcomed by all, there is no doubt. A country like India is to have ‘one tax, one market, agreed! But GST treated exports as an outcast, gave it a raw treatment. There is structural anamoly. In terms of Section 16 Integrated Goods and Services Act, exports are defined as zero-rated supply, which means that exports would not be taxed. Fair enough, one can export only goods not taxes, that is internationally agreed dictum. But what happened? A scheme was introduced in terms of guidance notes whereby exports were taxed through Integrated GST (IGST) with a provision for refund. Little forgetting in the process, that there is a time lag between payment of IGST at the time of exports and refund after the proceeds realization. Who is to fund this working capital gap? Many exporters work on annual schedules, this sudden increase in capital requirements must have jolted many. There were many a presentation made to the concerned. Only, when exports fell down drastically, did the government act. Perhaps, they all waited for the real evidence on the ground!

Added to this, the exchange rate was appreciating. Exchange rate and GST acted as double whammy for the exporters. Amidst all these confusion, one could have really missed innocuous news. It is that India’s per capita crossed US$1000. It is actually good news, it means that as a country we are progressing. But flip side is that in terms of extant WTO regulations, nations with such per capita are not eligible to subsidize their exports. In other words, the export incentives in the form of duty drawback, MEIS, SEIS and others MDA are not compatible with WTO requirements. Duty drawback and MEIS added up a cool 5% plus to the kitty of any exporter. In some cases, it was even more. This may not be the case down line, at least in the medium term of 3 years time.

Okay, the problems have been flagged! Are there ways and means to overcome? Yes, there are. We will examine in the next issue!

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